4 ms·

Nobody is grasping the end of the 0 rates regime

newaccount2021 4y ago
than3 4y ago
That's because few, if any, were being taught the fundamentals, and they also have not been taught to have a discerning eye, especially when identifying and using information, when its in fact propaganda. I'm far more concerned about the permanent 0% depository requirements change at the Fed far more than people not seeing the end of 0% rates. What use is all that history and education around understanding the mechanics of fractional reserve banking when a small group of people make a fundamental and permanent change without announcement like that? There is nothing more permanent than a temporary solution in government as was evidenced that no change has been made reverting that in 2 years, and QE printing continued for a decade after the previous financial contagion.
- nukemandan 4y ago
  Is the zero reserve ratio requirement what you are referring to here? Thus allowing banks working directly with the Fed to have zero "real" dollars in existence for customer deposits? I believe this is not true for all banks, but surely is shocking that this measure is in place, as it is unclear what holds those primary banks from lending to any extent they wish. I must be missing something.
  - than3 4y ago
    Yeah, that's what I'm talking about. Here is the url for reference if anyone wants to look at it https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm It doesn't look to me like there is anything holding them back from loaning as much money as they want regardless of the risk now.
    - credit_guy 4y ago
      There is something holding them back. Check this out https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220623a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre... The Board's stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their capital levels, losses, revenue and expenses under hypothetical scenarios over nine future quarters. Banks that lend with abandon would fail this test. This automatically means they can”t distribute dividends or do share buy-backs. Which in turn makes shareholders unhappy. They either vote the CEO out, or sell their shares to buy shares of banks that give dividends. That”s called “voting with your feet”. Results in stock tanking, then CEO out.
      - than3 4y ago
        I hadn't seen that, thanks. I try to always keep a healthy level of skepticism with these things. I'll have to dive into this in more detail tomorrow as it is now quite late and I spent most of my time deep diving/corroborating research from the recently released BiS report regarding the off-balance sheet, 85 trillion in USD denominated FX market swap liabilities, which supposedly are expiring in 12 months. Looked real bad, but its too early to draw any kind of sentiment/market speculation without a lot more research. This is the report I was checking out. https://www.bis.org/publ/qtrpdf/r_qt2212h.htm https://www.bis.org/publ/qtrpdf/r_qt2212h.htm
        credit_guy 4y ago
        I heard about this report, but I don't really understand what they mean. The BIS does a triennial survey of the FX markets [1], which they just released. It's a bit rich to say the FX markets lack transparency. What are they doing then in that survey? Make no mistake, the Fed, and other regulators, have full visibility of what banks do. Every dollar they lend, every derivative, every repo, every mortgage, everything. With the annual CCAR exercise, banks send a huge amount of information to the Fed. Not only numbers, but documents as well. A large bank will send tens of thousands of pages in one year. And countless number of spreadsheets with lots and lots of numbers. A lot of these numbers have to be disclosed to the public as well. This way the banks are not subject to only regulatory supervision, but to market discipline as well. That's by design. The financial regulations rules were overhauled over the last decade and a half, and this is one of its pillars, the disclosure and market discipline. If you are curious, here's [2] the full Basel framework in all its glory. Almost 1700 pages. Of course, this is just the tip of the iceberg. The actual regulations go into the hundreds of thousands of pages. [1] https://www.bis.org/statistics/rpfx22.htm https://www.bis.org/statistics/rpfx22.htm [2] file:///Users/viorelcosteanu/Downloads/BaselFramework.pdf
oceanplexian 4y ago
I think the poster is right but, the I have to laugh at statement that VC’s won’t be able to get a 4.5% return on their investment so why bother. VS’s aren’t in the game for a 4%, 10%, or even 20% return. They’re investing in startups that have the potential to get something like 1,500% or 5,000% returns on their money and many times, they eventually succeed. Sure raising money in a high interest rate environment will be harder but it doesn’t kill the VC model at all.
- rufus_foreman 4y ago
  A 5,000% annual return on a million dollars for 10 years is $119,042,423,827,612,787,802,112.
- chewz 4y ago
  It is 5000% on single bet out of 100.. And 100% loss on other 96 bets... Which makes VC's return on total capital much smaller then 5000%.. But more important high discount rate means much shorter runway for startups.
- dragonwriter 4y ago
  > They’re investing in startups that have the potential to get something like 1,500% or 5,000% returns on their money and many times, they eventually succeed And many, many, many more times they fail. The higher the risk-free interest rate, the higher the returns need to be to justify high-risk investment unless, like SBF, you simply eschew risk premiums. But most sane people, even VCs, aren’t that risk insensitive.
throw8383833jj 4y ago
based on the chart, the amount of VC funding is roughly equivalent to what it was the last 3 years prior to the last. I don't see why this is such a disaster.
poslathian 4y ago
FYI interest rates were 4-6% during the dotcom boom.

newaccount2021 4y ago

That's because few, if any, were being taught the fundamentals, and they also have not been taught to have a discerning eye, especially when identifying and using information, when its in fact propaganda. I'm far more concerned about the permanent 0% depository requirements change at the Fed far more than people not seeing the end of 0% rates. What use is all that history and education around understanding the mechanics of fractional reserve banking when a small group of people make a fundamental and permanent change without announcement like that? There is nothing more permanent than a temporary solution in government as was evidenced that no change has been made reverting that in 2 years, and QE printing continued for a decade after the previous financial contagion.

nukemandan 4y ago
Is the zero reserve ratio requirement what you are referring to here? Thus allowing banks working directly with the Fed to have zero "real" dollars in existence for customer deposits? I believe this is not true for all banks, but surely is shocking that this measure is in place, as it is unclear what holds those primary banks from lending to any extent they wish. I must be missing something.
- than3 4y ago
  Yeah, that's what I'm talking about. Here is the url for reference if anyone wants to look at it https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm It doesn't look to me like there is anything holding them back from loaning as much money as they want regardless of the risk now.
  - credit_guy 4y ago
    There is something holding them back. Check this out https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220623a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre... The Board's stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their capital levels, losses, revenue and expenses under hypothetical scenarios over nine future quarters. Banks that lend with abandon would fail this test. This automatically means they can”t distribute dividends or do share buy-backs. Which in turn makes shareholders unhappy. They either vote the CEO out, or sell their shares to buy shares of banks that give dividends. That”s called “voting with your feet”. Results in stock tanking, then CEO out.
    - than3 4y ago
      I hadn't seen that, thanks. I try to always keep a healthy level of skepticism with these things. I'll have to dive into this in more detail tomorrow as it is now quite late and I spent most of my time deep diving/corroborating research from the recently released BiS report regarding the off-balance sheet, 85 trillion in USD denominated FX market swap liabilities, which supposedly are expiring in 12 months. Looked real bad, but its too early to draw any kind of sentiment/market speculation without a lot more research. This is the report I was checking out. https://www.bis.org/publ/qtrpdf/r_qt2212h.htm https://www.bis.org/publ/qtrpdf/r_qt2212h.htm
      - credit_guy 4y ago
        I heard about this report, but I don't really understand what they mean. The BIS does a triennial survey of the FX markets [1], which they just released. It's a bit rich to say the FX markets lack transparency. What are they doing then in that survey? Make no mistake, the Fed, and other regulators, have full visibility of what banks do. Every dollar they lend, every derivative, every repo, every mortgage, everything. With the annual CCAR exercise, banks send a huge amount of information to the Fed. Not only numbers, but documents as well. A large bank will send tens of thousands of pages in one year. And countless number of spreadsheets with lots and lots of numbers. A lot of these numbers have to be disclosed to the public as well. This way the banks are not subject to only regulatory supervision, but to market discipline as well. That's by design. The financial regulations rules were overhauled over the last decade and a half, and this is one of its pillars, the disclosure and market discipline. If you are curious, here's [2] the full Basel framework in all its glory. Almost 1700 pages. Of course, this is just the tip of the iceberg. The actual regulations go into the hundreds of thousands of pages. [1] https://www.bis.org/statistics/rpfx22.htm https://www.bis.org/statistics/rpfx22.htm [2] file:///Users/viorelcosteanu/Downloads/BaselFramework.pdf

oceanplexian 4y ago

I think the poster is right but, the I have to laugh at statement that VC’s won’t be able to get a 4.5% return on their investment so why bother. VS’s aren’t in the game for a 4%, 10%, or even 20% return. They’re investing in startups that have the potential to get something like 1,500% or 5,000% returns on their money and many times, they eventually succeed. Sure raising money in a high interest rate environment will be harder but it doesn’t kill the VC model at all.

rufus_foreman 4y ago
A 5,000% annual return on a million dollars for 10 years is $119,042,423,827,612,787,802,112.
chewz 4y ago
It is 5000% on single bet out of 100.. And 100% loss on other 96 bets... Which makes VC's return on total capital much smaller then 5000%.. But more important high discount rate means much shorter runway for startups.
dragonwriter 4y ago
> They’re investing in startups that have the potential to get something like 1,500% or 5,000% returns on their money and many times, they eventually succeed And many, many, many more times they fail. The higher the risk-free interest rate, the higher the returns need to be to justify high-risk investment unless, like SBF, you simply eschew risk premiums. But most sane people, even VCs, aren’t that risk insensitive.

throw8383833jj 4y ago

based on the chart, the amount of VC funding is roughly equivalent to what it was the last 3 years prior to the last. I don't see why this is such a disaster.

poslathian 4y ago

FYI interest rates were 4-6% during the dotcom boom.